Do something, do anything!!

Cameron is coming under pressure from friend and foe alike for not doing anything other than criticising Brown's chancellorship and then offering Medium Term alternatives that would produce more stability.

"How would you propose to get us out of recession", he is being asked on all sides. It should be remembered that our economic wizard Bottler , now renamed "Prancer", is not even mentioning the "R" word. He is content to promise to do everything to solve the problem, as he has for some months now. He did at least promote a possible solution to the Banking breakdown, even if it was originally a Swedish policy some 15 years ago and brought to his attention by an astute City man last week.

The problem essentially is debt, both public and private.

Keynesian remedies, promoted by Boris among others, involve undertaking some large public building schemes. The problems here, apart from the fact that there is a very large, - the largest in Europe, black hole in the Budget, are that such schemes take some time to get off the ground and then the fact that earners are supposed to spend "all " they receive in another round of spending. The earners may not do that, unless you can change expectations, and may prefer to build up their savings instead. The impetus has to be maintained in a progressive way until business picks up confidently enough not to seed the stimulus, because if the stimulus is not maintained the whole process could go into reverse.

Keynesians could also recommend making credit easier for consumers, but given the large presence of debt how much of a gamble will they take? We are in the present mess because credit was too easy and people overreached themselves. Well, why not encourage spending by consumers from tax cuts? The same applies - Government debt, already large, will grow initially and consumers may save their higher incomes.

John Redwood is urging massive cuts in interest rates, which could persuade consumers to buy more and firms to invest in capital equipment and plant. This could offer a speedier response than public sector building construction in London, and if people believed that rates would be low for some time it could help the situation. Lower interest rates, however achieved, could reduce the income of those relying on savings and lead to them consuming less. Many older people would be in this category.

The real problem with depressing interest rates, as Messrs. Bush and Greenspan have discovered, is that it may reduce recession in the short run, - politically attractive, but at the cost of leading to longer term failure to permit adjustments in the economy. The bail-out of the UK economy which led to a £2.3 billion IMF loan in 1976 ultimately led to problems some three or four years later. Between 1974 and 1980 the pound lost nearly two thirds of its value.

In the old days of the business cycle, which Prancer thought he had abolished, far sighted Governments accumulated surpluses in boom times and were able to draw on these when downturn occurred. In the last cycle we have done the opposite, - run into debt during a boom, and therefore ill-prepared for the downturn.

The booms and slumps every 7 or 8 years arguably need some ironing out by government. Slumps were very distressing for those who suffered, but at least during the recession by some sort of Darwinian process the economy adjusted to new conditions. Trying to maintain everything while ignoring underlying changes and stopping adjustment can work for a time but may cause an even greater problem later.

In summary to quote the old joke, "If I was going to xxxxx, I wouldn't start from here." But we are here, there will be some suffering whatever we do. Somehow expectations need to be changed. Somehow a stimulus must be offered. But to remain Canute-like permitting no adjustment will only postpone a healthy economy, and will saddle future taxpayers with even more burdens.